Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/61305
Authors: 
Schweizer, Martin
Year of Publication: 
1998
Series/Report no.: 
Discussion Papers, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes 1998,106
Abstract: 
Let X be a continuous adapted process for which there exists an equivalent local martingale measure (ELMM). The minimal martingale measure P is the unique ELMM for X with the property that local P-martingales strongly orthogonal to the P-martingale part of X are also local P-martingales. We prove that if P exists, it minimizes the reverse relative entropy H(P) over all ELMMs Q for X. A counterexample shows that the assumption of continuity cannot be dropped.
Subjects: 
relative entropy
minimal martingale measure
equivalent martingale measures
JEL: 
G10
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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